The industry known as “outsourcing” is currently under its greatest-ever attack. President Obama has made attacking Bain Capital’s promotion of itself as a “one stop outsourcing shop” as the focal point of his campaign. And this is a serious attack – he has $512m in campaign money left to burn, and only $25m a month is currently being spent on attack-ads from both parties – the worst is yet to come (from both sides).
Without getting (overly) sucked into the politics, this election is becoming so nasty, so vehement and so contentious, that common sense is taking a backseat to negative politics, as many of the anonymous donors of hundreds of millions of dollars of Super PAC money demand victory at all costs, regardless of the collateral damage along the way.
Worryingly, for the business and IT services industry, we are all now caught in the crossfire. This is quickly developing into an attack on “outsourcing” that is going mainstream, where many pundits and voters, not familiar with the complexities of global business, are jumping on the bandwagon. As a British subject observing these shenanigans in amazement, I am increasingly wishing this election process could hurry up and be concluded, so this country can finally get back to creating policies, as opposed to this civil war of partisan politics, which is focused almost entirely on negativity, where winning at any cost seems to be the order of the day for both parties. I sincerely hope the global economy can hold up through November, as we endure this painful – and, quite honestly, rather shameful period in our history.
“Outsourcing” is the symptom of an increasingly competitive global economy, not the cause of America’s economic woes
To cut the chase, Obama is appealing to the fear from protectionists and the masses that US jobs are being “shipped overseas” and he will “insource” them back to the US if he is re-elected. What he is glossing over is the fact that 97% of US organizations today, with over $1 billion in revenue, are already outsourcing some piece of their business or IT operations and – in most cases – some degree of overseas labor is used by the service provider. What he needs to focus in on is why service providers use overseas labor: because it is cheaper, and there is a lot more of it available. Our current survey is exposing this fact in spades, which we will reveal soon.
The President should be bemoaning the fact that US labor costs are far too high and the country is not currently blessed with millions of people in urban or rural concentrations who are prepared to take on lower level white collar jobs at $25-40K per annum. He should be bemoaning the fact that the US education system isn’t producing hordes of graduates qualified in ABAP programming that can compete with the Indian factory model. He should be bemoaning the fact that the 8% of the US workforce currently unemployed aren’t filling the jobs that are being “shipped overseas”. Our data already shows that most US business would love to move work to onshore locations, and would be prepared to make much less significant cost savings, if it was available.
Organizations outsource because it makes them more competitive and it pleases their shareholders. If Obama truly wants to be the “Insourcing President”, then he has to figure out how to make the US labor force competitive with the rest of the world. That is where he should be focusing, as opposed to pandering to the xenophobia of the masses by claiming other countries are stealing their jobs because evil corporate leaders, which he claims Mitt Romney supposedly once was when at Bain, shipped them away in the first place. “Outsourcing” is a symptom of America’s continuously spiraling cost of living and lack of available talent, which is the real cause.
And what really gets my goat is the fact that “outsourcing” is always the whipping boy for corporate greed. How about the software industry? Forget shipping some jobs overseas, these guys want to automate all corporate support activities and eliminate jobs altogether! Why aren’t we seeing Larry Ellison, Jim Hagemann Snabe or Marc Benioff being demonized as job eliminators? SAP just announced their best ever quarter – how many jobs have been eliminated because of the evil corporations plowing millions into their ERP platforms? Why don’t we just call the software industry the “unnecessary job elimination industry”?
So how should the “outsourcing” industry deal with this?
For years, we’ve bemoaned – but ultimately ignored – the negative emotions that outsourcing incites, with which customers of outsourcing services really struggle (remember this piece?). Most of have reluctantly agreed that we could never change the dreaded term, so we might as well be resigned to live with it.
And just when we were finally thinking that most of the mainstream IT and business process work, that uses some degree of offshore support, had become commonplace in today’s modern organization, the old “outsourcing is a dirty word” scenario has returned – and returned in spades. This time, outsourcing is a really dirty word. Just ask Bloomberg!
We all know Obama is pandering to the xenophobia of the masses to avoid losing votes to Romney. We all know he’s not openly tackling the real causes of the US’ economic woes in his campaign… but he is the President. And when the President is personally appearing on TV every 15 minutes, whipping up more fury about evil outsourcing, the services industry has, I’m afraid, now got an image problem that is worse than we’ve ever had.
We’ve made our feelings pretty clear, at HfS, that it’s time to evolve how we approach and promote global services. Yes, it makes great conversation, but now the Pres is forcing the industry into a corner. We have to match the misperception of how the business and IT services industry operates with reality of what we really do – it’s clear these prejudices are not fading with time, the flames are always there to be fanned when it suits the purposes of protectionists and politicians. Stay tuned, we’ll give you the opportunity to cast your vote soon about what we should do with “outsourcing” terminology, but in the meantime, I’d love you to share your feelings with us,
Jonathan Yarmis (aka "Dr Disruptive") is Vice President, Social Business Research at HfS (Click for Bio)
Social media and collaboration has been the heart of HfS, ever since we began as a wee blog in 2007. And while “social” has provided an obvious catalyst for helping some analysts and industry influencers share their insights and develop their networks with incredible speed and hapless abandon, we are now seeing the beginnings of social business playing a truly disruptive role in influencing the way global organizations are evolving.
Today, managers, employees, provider staff and even consultants can have access to data, insight, infinite networking and crowdsourcing opportunities that simply didn’t exist even a couple of years’ ago. Global business practices are starting to become disrupted in ways that are frightening many firms into retrenching, while others are realizing they have little choice but to embrace the change, otherwise get left behind.
People no longer have to pay thousands of dollars every-time they need help or information these days, especially when dealing with business and IT processes that no longer require some “secret sauce” to become common practice. “Best-in-class” industry process workflows, which many organizations have historically paid hundreds of thousands of dollars to acquire in the past, can now be accessed and shared, within minutes, by visiting many of these social networks – and some are even facilitated by providers themselves.
Buyers, providers, consultants, lawyers, analysts, investors… all of the industry stakeholders, need to wake up to what is happening in the world, as our skillsets, best practices, trade secrets and the like, are much more easily accessible at a global level. Remember how similarly disruptive delivery models blew up the media, entertainment and PR industries in recent years? Well, the same is happening to all industries that thrive on collaboration and information – and none more so than global sourcing.
To this end, we are compelled at HfS to focus intensely on social business and its disruptive enablers, such as mobility and cloud, in order to stay ahead of the curve, with how our global operations industry is being impacted.
So who better to onboard, than the services of a man I actually named “Doctor Disruptive” in 2007 (he’s probably forgotten I did that), who was lauding the future business impact of mediums such as Twitter, when a colleague of mine at AMR research. The only difference was – in those days – most of the analyst industry thought Jonathan Yarmis was plain nuts. Well, they were right about the nuts, but not about the fact that he was onto something three years’ ahead of his time.
Jonathan is a rare breed; someone who has an encyclopedic knowledge of technology, having been one of the original “Gartner Greats” in the 1990’s, before spending time as a lead executive in the hi-tech PR world for Hill and Knowlton, and finally returning to the analyst industry with AMR Research. Yes, Doctor Disruptive has crafted a trade where he combines an intimate knowledge of technology, media and global business dynamics to bring to you a unique research practice dedicated entirely to covering the impact that social media and disruptive technologies are having on global business dynamics and operations. Jonathan today resides in Stamford CT, a stone’s throw from his old Gartner stomping ground, where is the proud Dad of Sam, who is going into her junior year at at Oxford University, England, and Ben, who’s an aerospace and mechanical engineering major going into his senior year at George Washington.
So after the longest-ever introduction to an new analyst hire, I hand you over to the notorious Jonathan Yarmis, who waxes lyrical on…
Disruptive Technologies: The Sourcerer’s Apprentice
Today’s outsourcing leaders broadly proclaim that the broad deployment of a new generation of disruptive technologies (social, mobile and cloud) offer new vistas and new opportunities for their businesses to add customer value. Their bold assertions of opportunity ignore the fact that these new platforms actually represent a significant challenge to their businesses. The water is rising and it will take a wizard’s deft hand for them to survive the floodwaters that have been unleashed upon their castles.
Disruptive technologies have been a hallmark of the technology landscape since the advent of the minicomputer and, more profoundly, the personal computer. (I began my career in technology back in the early PC days of 1979, before IBM entered the market.) However, successive generations of these disruptive technologies have all been constrained by the fact that they lacked enterprise scale and scope. This has been irreversibly changed; users now rule the roost. Gartner calls this the “consumerization of IT.” What they’ve overlooked, however, is that this is inexorably leading to the consumerization of business and the “IT-ization” of consumers. Our users and customers now have access to infinitely scalable platforms with global reach. Facebook supports 900 million users. Can your enterprise solution deal with that? Amazon has deployed over 500,000 servers and is adding over 100,000 virtual machines to their cloud every day. You think that’s a big number? Google handles 34,000 searches every second. That equates to 3 billion per day. Three billion. Has your enterprise system handled that many transactions in totality? Ever? The “consumer” platforms like Amazon, Google and Facebook have been forced to define their own operating platforms building on top of cheap, scalable consumer hardware to deal with their own unique requirements. They haven’t outsourced their platform development and deployment. They’ve had to develop it themselves and, having done so, they make it available…perhaps most amazingly, often for free.
You’re probably thinking “yeah, but what does this have to do with me and my business?” At the risk of gross generalization, today’s generation of outsourcers have been able to flourish because business processes are:
Formally defined
Top down
Replicable across companies (enabling economies of scale for the outsourcer)
Predominantly intra-enterprise
Enterprise-centric.
By contrast, these disruptive technologies are creating shadow processes which mimic, supplement and eventually will supplant at least some formal processes. Some of the hallmarks of these new processes include that they are:
User defined
Often running on user-provided hardware (BYOD)
Ad hoc
Unique to a company
And maybe even then, not replicable
Transcend enterprise boundaries
In fact, they’re often unaware of enterprise-boundaries
User- and customer-centric.
It is not hyperbole to suggest that BYOD (“bring your own device”) will soon be complemented by BYOP (“bring your own platform”). Think about that one for a moment. We’ve seen the chaos wrought by BYOD. We have to develop for platforms we didn’t even know were deployed in the enterprise. We have security risks enough to scare even the non-paranoid. (I can see the hand-wringing from my new colleague Jim Slaby.) And we’re so powerless to stop it that we’ve given it a term (BYOD) and embraced it as a strategy.
BYOP won’t be so clean. How have enterprises tried to deal with this? Phase 1 has been to try and subsume the user revolution. So, CRM is slowly giving way to “social CRM.” This is a laudable objective on its surface. And ultimately it’s going to fail the same way that CRM has failed, only bigger. Why? Because it’s built on a fundamentally flawed premise. The holy grail of the 360 degree customer view is unachievable. Heck, we can’t even get a complete view of our own transactions with a customer, let alone a 360 degree view. More data – big data is the new holy grail – hasn’t gotten us closer to that goal. I might even argue that big data is a big step…backwards. That’s a discussion for another day but a hint: we’ve spent decades trying to move from data to information to knowledge to wisdom. Now we’re thinking more data is the answer? If we don’t focus on transforming big data into big insights or big actions, we’ll just drown in that rising tide of data.
Anyhow, back to the question at hand. What will the rise of social and mobile and cloud platforms mean for existing categories of enterprise software? In the case of CRM, beyond social CRM – including social interactions in our customer information – will inexorably lead to VRM. Vendor Relationship Management. A whole new category where the user is in control and we realize the only way we get a 360 degree customer view is to earn the customer’s trust and ask them for permission to see relevant parts of that view.
As is so often the case with new technologies, we go through two phases. In the first phase, we apply it to existing processes, hoping to make them more efficient or effective. In phase two, where things get interesting, we instead ask “what can we do now that we couldn’t do before?” When it comes to social, mobile and cloud, we’re still largely in phase 1. You may not have noticed but we’re actually going on five years in to this revolution, which is usually when we start moving on to phase 2. It is upon us. This revolution is going to transform our business processes in profound and still poorly and mis-understood ways.
That’s why I’m here. To help you understand and prepare for this brave new world. We’ll help you get those floodwaters to recede. My research agenda will focus on how social business will change the way we work, the way it impacts various categories of software, industries and job functions. I’ve already had some fun conversations with Tony Filippone when I’ve made the assertion that social business changes “everything.” With his eminently practical practitioner’s eye, he’s come up with some use cases where the impact will be minor at first, and slow to evolve…and we’ll acknowledge those. I’m not here to be a cheerleader for social business. But nor will I let you ignore the profound changes coming down the road. I’m looking forward to challenging your thinking, and having you challenge mine.
Whoever said we weren't stimulating new growth in the professional services industry?
Every few years there comes along a piece of regulation, or enforced change, from which hoards of management consultants, service providers and tech companies can prosper.
The Y2K bug created an unlimited ATM for the whole software and services industry, and the infamous SarbanesOxley which created more audit partners than eHarmony. And just as you thought that well was running dry, we now have Dodd-Frank Act, designed to:
“Promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
With Michael Koontz, our new lead analyst for banking and financial services, now fully bedded-in, he’s found half his time is already being spent talking to clients about how to get ahead of these new regulations. Let’s hear his initial thoughts…
Dodd-Frank turns Two
Please join me in wishing Dodd-Frank “Happy Birthday.” This is the largest financial reform act in U.S. history, amassing 884 pages when it was finally signed in 2010, designed to enforce the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression.
Dodd-Frank was implemented to address the financial services meltdown, that began back in 2007. In the political aftermath, Regulators were quick pass this legislation which has now morphed into the 2,000 pages and 400 separate rules that we see today. Dodd-Frank was designed to strengthen oversight of banks as well as insurance companies, mortgage companies, and brokerage firms.
Now, at the end of its second year, federal agencies have passed 221 rules. Financial institutions and insurance companies are scrambling to meet all these new requirements, while trying to anticipate the implications of rules that have yet to be finalized.
Securing the necessary resources to meet these demands is proving to be a significant challenge for both the regulatory agencies and the companies affected, and the subsequent need for strong risk management and compliance personnel is growing across the United States. Not since the scramble to meet Y2K, have financial institutions been forced to rely as heavily on management consultants and third party providers to meet compliance deadlines. That is right, Y2K, did that bring back some memories?
Adding qualified staff is already proving to be a challenge for financial institutions. For the average tier one bank, risk and compliance personnel represent about 3 percent of the total workforce. This number is expected to double as a result of the staff increases required by Dodd-Frank, but the demand for qualified staff outweighs the supply. There are 1,000’s of “risk jobs” posted on job sites all over the Internet. There is a run on talent in the U.S. if you have risk management or compliance experience on your resume.
Financial institutions will remain skeptical on outsourcing this work until they figure it out themselves but with the amount of work that is going to be required, and soon, it won’t be long before they are having these discussions with their business partners.
Both consultants and outsourcing providers will be receiving calls for help, but what most companies will find is that there is only a select few that are going to be able to step-up and support this level of work. There is work that can be outsourced, including much of the analytics and reporting functions for compliance reporting, however, the tricky part is going to be finding the provider who is capable to support the levels of both complexity and rigor to meet the banking and regulatory standards. For providers, this is going to make a SAS70 type II audit look like a walk in the park!
Michael Koontz is SVP, Banking and Financial Services, HfS Research (click for bio)
The full impact of Dodd-Frank is still a great unknown, but likely to be significant, and HfS is watching it closely to observe which consulting companies and outsourcing providers are able to step up and support their clients.
You can read more about Michael Koontz’s initial observations by accessing our new research site here. You can also request a copy by emailing us here.
The debate’s been raging for years, since we first broached this topic over four years ago, where the common consensus was pretty much “we’re stuck with it, so might as well live with it”.
However, while the outsourcing industry has (largely) matured, with many new clients focused on achieving value that isn’t merely derived via cost-savings from lower cost labor, the political rhetoric has stood still, with the vast populous still associating the “O” word with shipping jobs abroad.
So… it’s time for YOU to have your say, whether you buy, sell, advise, analyze or influence IT or business services.
Please spend five minutes of your time adding your own viewpoint on whether or not the industry known as “outsourcing” should reinvent itself:
The recent issue regarding Infosys landing in hot water over alleged misuse of B-1 visas is being completely overblown.
Many of you may have read this week’s article in the Wall Street Journal’s CIO Journal which outlines the issue of overseas tech staffs’ employers using various temporary work visas to work on global ITO engagements. Let’s discuss the major contentious issues in play here:
1) CIOs and CFOs have a right to know about the legality of their onsite personnel. When you have staff from overseas locations working intimately – and in close physical proximity – with your local staff, you need to be sure they are present on the appropriate immigrant visa. If you are using a purely remote outsourcing service – such as a payroll processor, then you are simply acquiring a service and this shouldn’t be a concern, however, if you are having services staff performing tasks that are directly visible to your employees in a work setting, you should ensure these immigration issues do not create negative exposure for your firm.
2) All service providers use all the various immigration visas. H-1s, L-1s, B-1s, O-1s, Green Cards – they all form part of the global sourcing equation when staff are required onsite. The bone of contention with the recent issue has been the use of the B-1 business visa, which includes “negotiation of contracts, consultation with business associates” as part of its usage, provided the purpose is not “gainful employment”. Forgive me if I am wrong, but if an India-based expert visits a US client temporarily to support a contract process or consult on getting an onsite-offshore project working, then there really ain’t too much wrong with using said visa for said purpose.
3) Unemployment in IT is running at half the US average – we need these skills. According to a recent Mashable article :
“The unemployment rate among information technology (IT) professionals remains at about half of the national average at 4.4% in the first quarter of 2012 — and that’s no surprise given the strong demand. Hiring managers are even facing stiff competition in securing some key types of IT skills”
The reason many of the service providers are keen to bring talent into the country to work on engagements is because they bring the experience of managing offshore personnel, and helping with the provision of scarce skills for the client. This isn’t always about saving a few dollars from someone’s rate card, it is about making these global sourcing engagements work effectively. Moreover, many of the “landed” account/project managers working onsite in locations such as the US are training the local staff to manage international staff effectively.
4) Having global project experience is critical for US IT professionals. The signs are good that US enterprises will increasingly be looking locally for IT staff (which our new study findings will reveal next week), and will be seeking a strong balance across their Indo-US IT staffing models. Hence, they need to up their skills with having US staff schooled in managing global projects. The only way to do that is to have experienced account/project managers spend time with local staff to help develop their management experience. You can’t run this all in a remote model – you need mixed teams of provider and client staff to make these engagements work effectively.
The Bottom-line: It’s time to embrace and compete, not resist and fall further behind
Having petty stories like this being blown up in the media is only causing negative emotions and xenophobia to be stirred up needlessly in this year’s political melting-pot. We operate in a global business climate these days, in case anyone hasn’t noticed… it’s time to embrace and compete, not resist and fall further behind.
The most exciting change in the world of outsourcing has been the increased focus on services that are based on expertise augmentation and a genuine return on investment (which is why so many people want to use a different terminology).
And when we get into areas right at the cutting edge of revenue generation for clients, such as marketing and media, where clients need access to capabilities they may not currently have to gain a competitive edge, we can see where the future lies for the business services industry. One of our most talented analysts, Reetika Joshi, has been investigating the world of digital media and its major potential for third party services…
At HfS Research, we have expressed our views time and again about the strong potential of outsourcing marketing services in today’s complex marketplace. Last year, our research has revealed growing interest by buyers and an expanding gamut of services offered by service providers as they test out their value propositions. One of the hottest marketing services sub-segment has to be digital marketing. Digital media marketing is in a state of constant change, and most organizations have yet to fully explore the growing potential. Naturally, this is where our work took us next, to decipher the different components of digital media marketing, the companies in the marketing and advertising value chain that need help, and the companies that are stepping up to provide it.
Advertisers traditionally engage with ad agencies to manage the companies’ creative processes when the advertisers choose not to manage the processes directly. With the growth in online advertising, the responsibility naturally fell to the agencies to pick up the pace and rapidly develop digital capabilities. Granted, the end objectives of running traditional and digital campaigns are similar, and the work is synergistic as the same key messages are put out across channels. However, on the ground, there are fundamental differences in the type of capabilities needed for these two service areas. Exploiting analytics, emerging technologies and growing social media channels sound obvious to an outsider, but advertisers and their ad agencies are not geared to tackle digital in the same way as traditional media. The lack of specialized talent, strategic alignment and scale are the key challenges inhibiting many advertisers and agencies from running optimized digital campaigns.
We have seen a sharp increase in interest by organizations in leveraging external partnerships for improving marketing operations, especially in digital media. Bringing expertise and improved outcomes to their clients – not just less expensive solutions – is a driving factor. Together with Centro (a media logistics company), HfS Research is undertaking new research on how marketers and their agencies are re-thinking their operations strategies to accommodate the growing importance of digital media. Our latest report highlights a winning strategic partnership in digital media logistics and the challenges it entails. By working with Centro, a mid-size ad agency was able to master digital media operations and offer comprehensive solutions to their clients, gaining >50 percent productivity and significant cost savings ($300-400,000) along the way. Centro introduced accountability and thought leadership in digital media for the client, provided dedicated specialized digital teams, drove efficiency and effectiveness, and enabled the agency to focus on overall media strategy. For the last three years, Centro has essentially acted as their client’s strategic and tactical digital team, helping them transform from a creative boutique into a full-service marketing communications agency.
Reetika Joshi is Principal Analyst, BPO and Analytics Strategies (click for bio)
HfS Research believes that there is undeniable merit in working with external digital media specialists. Given the rapid change in the technology landscape and the growing reliance on digital advertising, marketers and ad agencies need to rethink their operations strategies to address these issues. With growing opportunity, a range of digital media operations specialists have emerged in the last ten years. Advertisers and agencies that are keen to get expert help must do their due diligence. HfS recommends the following key differentiators when evaluating digital operations specialists:
The use of enabling technologies to effect automation and workflow optimization. Technology-enabled platforms are especially valuable when they work across the digital advertising value stream, streamlining your operations and saving time and money;
Deep digital advertising expertise that doesn’t just take your process level tasks off your hands but also advises you on how to realize your/your client’s goals through digital strategy;
Strong industry relationships (e.g., local and industry-specific publishers) to give you better quality buys for you/your clients.
You can access the HfS Research case study covering the challenges of tackling digital media operations by clicking here.
Now if someone had told me a couple of years’ ago that Big 4 consultants would start acquiring firms with names such as “Ant’s Eye View” I may have remarked that you may still be suffering from those over-indulgences of the ’60s and ’70s.
However, we are now living in an age where things like this are actually happening… so without further ado, here is HfS’ social business impressario Jonathan Yarmis on why PwC just went and bought a social business strategy firm with a hallucinogenic name…
So what on earth’s an “Ant’s Eye View” …and why did PwC acquire one?
On August 14, PwC announced its intent to acquire social media strategy firm Ant’s Eye View (AEV). There are all sorts of reasons to dismiss this acquisition – this is neither the first nor the last acquisition we’ll see by big companies attempting to acquire their way into the social business space – but we’re actually guardedly optimistic about this one.
From its inception 3-1/2 years ago, Ant’s Eye View has been more than an opportunistic company. With its focus on real-life practitioners and with a sweeping vision for the impact of social business, AEV is differentiated from the thousands of agencies chasing “the next hula hoop.” Time will tell whether AEV can preserve its distinctive culture under the PwC umbrella but the parties are entering this relationship with their eyes wide open. Despite these concerns, we nonetheless expect PwC to be able to drive at least some incremental traffic and awarenessto AEV, so If you’re a PwC client looking for an agency to help develop a social strategy, I’d get in the AEV queue quickly (after, of course, talking with HfS).
The Social Gold Rush
Seemingly anyone who has more than 50 friends on Facebook or 500 followers on Twitter has set up a social business consultancy. Noted social media observer Peter Shankman penned a blog post a year ago entitled “I will never hire a ‘social media expert’ and neither should you” (http://shankman.com/i-will-never-hire-a-social-media-expert-and-neither-should-you/) where he noted the similarities between the original dot com furor and our new fascination with social media. Back then, numerous agencies popped up with names like Scient, Viant and Agency.com. Many of them got acquired, at astronomical (and in retrospect, insane) valuations; a few exist in quasi-independent status to this day.
We’re now seeing a similar frenzy in the social media space. From big acquisitions like Salesforce.com’s acquisition of social media monitoring powerhouse Radian6 and Microsoft’s acquisition of social platform company Yammer all the way down to acquisitions like this one, there’s a feeding frenzy to acquire social media skills and market presence. Unfortunately, most of these deals are focused on the latter: companies who were slow to react to the explosive growth of social media are now buying their way into the market. Ultimately, those kinds of acquisitions may bring along a few clients but the ability to scale the acquisition, or even retain the existing client base, is questionable at best. These kinds of acquisitions simply don’t scale, the skills of the people acquired are of great variability (and the better ones are often the first to go), the IP acquired is scanty at best and the integration into the acquiring company is often problematic.
Reason for Optimism
Against this largely negative view, we actually believe PwC’s acquisition of Ant’s Eye View stands to be better than most. What differentiates AEV?
The founders are very well-regarded practitioners, with a passionate belief in the transformative nature of social media. This is not just a company chasing the next hula hoop.
From the beginning, the founders had a vision of building a big company that was able to deliver against the transformative vision. CEO Sean O’Driscoll called it a BHAG: “big, hairy audacious goal.”
AEV has built a roster of top-level practitioners. They didn’t want a bunch of self-proclaimed “social gurus.” They focused on people who had practical experience at top brands (and often brought those brands along as clients). We’re familiar with some of their people and have spoken with people familiar with the firm’s efforts and there is universal praise. These guys are good.
AEV approaches this deal with eyes wide open. This isn’t a deal for the AEV founders to cash out while the cashing’s good. Instead, they have a significant understanding of the growth opportunities PwC affords them, opportunities that they just wouldn’t have had given their own organic growth plans.
Concerns and Caveats
Despite all this, there are numerous caveats in any acquisition like this.
This doesn’t dramatically change PwC’s “social chops.” With specialized expertise like this, there’s no easy way to build this out into a broader PwC capability. The acquisition will certainly give AEV greater reach but their ability to scale with the scope of the opportunity just doesn’t exist; they can’t answer every PwC partner’s call. If they push too hard, it could actually hurt their value proposition. That said, our discussions with O’Driscoll indicate not only an awareness of this risk but a strong belief that the business can scale and that PwC will facilitate that growth..
O’Driscoll talks proudly about AEV’s focus on culture from the beginning. In his blog post announcing the acquisition, O’Driscoll writes “We have a lot to be proud of, but perhaps what I’m most proud of isn’t the work we did, but the way we did our work. We created a culture and environment that inspired us. We knew right away that in order to hire the best people, we needed to be the best place to work. Culture wasn’t an accident at Ant’s Eye View, we co-developed it as a team and it’s resulted in bonds that will have a lasting impact on all of us.” What happens when that vision meets PwC’s enormity? Promises of autonomy and representations of understanding of the unique cultural environment last until the first missed quarter or deadline or change in management. Fortunately, both sides are going into this with solid understandings and insights. For instance, O’Driscoll talked candidly about talking to many potential suitors, most of whom he walked away from because of poor cultural fit, particularly in the advertising/agency space. And in our conversation, PwC Advisory Partner Tom Puthiyamadam voiced all the right things about PwC’s support for the AEV approach and culture.
Key Takeaways
In summary, while we look askance at many acquisitions in the social media space, PwC’s acquisition of Ant’s Eye View is better than most. AEV is a well-regarded firm with more experience and intellectual rigor than we typically see. If PwC was going to acquire anyone, they really couldn’t have done much better than this, and AEV seems to have done its diligence in selecting an acquirer. Time will tell how effective PWC is in opening doors for AEV to its clients’ CMOs and whether AEV’s distinctive culture, to so critical to its success, can survive in a big consultancy known for its risk-averse culture and accounting legacy. If you’re a PwC client looking for an agency to help develop a social strategy, I’d get in the AEV queue quickly (after, of course, talking with HfS).
We are obviously fervent believers in the impact social will have on wide swaths of how we’ll do business in the future. It is beyond the scope of this document to convince you of that imperative. If you’re not a believer, well, you’re probably not reading at this point anyhow.
HfS Recommendations for Buyers of Social Media Solutions
It will take some time for AEV to scale up with PwC’s reach, resources and capabilities. In the interim, if you can’t get onto AEV’s list of current engagements, you should look at their approach to this business when you evaluate other potential provider partners.
Focus on practitioners with real-world experience as opposed to self-appointed social gurus
Deep industry/vertical knowledge. Regulatory considerations among many other factors make it such that one-size-fits-all approaches do not work.
Focus on process and frameworks. While we’re still in the very early stage of the evolution of thinking around social business, it’s not so early that you can’t look for emerging structure. Providers with real IP and processes are likely to provide more durable value than those who merely exist for “Imagineering.”
HfS Recommendations for Service Providers
Jonathan Yarmis is Research Vice President at HfS (Click for Bio)
In our conversations with service providers, we’re struck by how serious they are about the opportunity afforded by social technologies…and the depths of their uncertainty about how to approach the business. Even while you build out your own organic capabilities, you’re likely to pursue acquisitions to supplement your capabilities. The Ant’s Eye View acquisition could serve as a template for what to look for. You want companies that have:
Real, referenceable clients;
Deep, compelling vision;
Intellectual property and replicable processes; and
Strong culture.
You will have to balance the inherent tension among:
Letting the business continue to grow on its own trajectory,
Injecting your own capabilities and functions (and overhead) into the company, and
Mining their approach and processes for incorporation back into your own business (at the cost of their single-minded focus on growing their own business).
There are clearly trade-offs involved but if you don’t balance appropriately, you won’t realize the full benefit of your expenditure and may in fact destroy the value proposition.
